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Are you going to make a federal case out of it?

Small towns can use federal laws to prosecute employee embezzlers

July/August 2018

ByTom Mayhall, CFE, CPA; Sarah Malcom, CFE, CPA

Employees who handle cash in small towns often have few safeguards, so it’s easy for fraudsters to abscond with millions over several years. Here’s how to prevent and deter these supposedly trusted and longtime staffers and how to prosecute them under federal laws.

By now, we all know about Rita Crundwell’s infamous $53 million embezzlement from the city of Dixon, Illinois, when she was its comptroller and treasurer. She stole an astronomical amount, but crooked employees often rip off small municipalities. Vicky Vinson Capetillo, former city clerk of the city of Groveton, Georgia, stole almost $900,000. And Nancy Dobrowski, clerk of the village of Burnham, Illinois, stole $700,000 in her nine-year scheme. [See
Former Groveton City Clerk Pleads Guilty To Embezzling Nearly $900,000, U.S. Department of Justice (DOJ), Dec. 18, 2017, and
Former Burnham clerk given 18 months in prison for theft from village, Sept. 9, 2014, Chicago Tribune.] These are just two of too many.

Lack of internal controls, poor separation of duties and little professional skepticism cost taxpayers millions in small towns around the globe. Each of these little places — whether in rural Nebraska, the Nigerian countryside or the foothills of the French Alps — usually employ just a few staff members and have part-time mayors and volunteer councils. Yet they entrust their employees with hundreds of thousands and even millions in currency. And sometimes just a supervisor or a very part-time board of directors manages water and sewer utilities.

In this article, we explore the unique fiscal frailties of small municipalities plus how U.S. fraud examiners can use federal statutes to successfully prosecute fraudsters instead of solely relying on local law enforcement.